Closing in on open banking

How could open banking revolutionise how banks generate value?

Citi opened up its platforms in November 2016 through its Global API Developer Portal, a self-service global portal enabling developers to write software in multiple contemporary programming languages and allowing them to get access to a rich set of APIs covering 80% of transactions performed by Citi customers. The bank has since forged strategic partnerships with tech giants such Grab, Lazada, Amazon, and Airbnb. “Citi’s Open Banking strategy focuses on forging strategic alliances with digital players and established brands that are an integral part of our customers’ lifestyles,” said James Griffiths, a spokesperson for Citi in Asia.

Open banking—a platform-based business approach—could revolutionise how banks generate value. “Open banking offers leading banks the opportunity to expose data, algorithms and processes through application programming interfaces (APIs) and create new revenue streams,” said Berend de Jong, managing director at Accenture. “If banks are to restore profitability and successfully compete with their banking and non-banking peers, open banking is one option that could make all the difference to their digital transformation programmes,” he added.

Whilst open banking stands to foster new areas of competition between banks and nonbanks, McKinsey analyst Laura Brodsky noted it is also likely to usher in an entirely new financial services ecosystem, in which banks’ roles may shift markedly. “It also raises issues around regulation and data privacy, which helps to explain why global markets have taken varying approaches to governance, contributing to disparate levels of progress. Regardless of region, the momentum toward open banking models seems clear, requiring banks and fintechs alike to position themselves for success in a new environment and to anticipate the likely customer impacts,” she added.

Brodsky warned that data sharing in financial services tends to be risk- and permission-based, with required audit trails, and subject to regulation and risk management. If done well, however, she said it can deliver increased security through enhanced know-your-customer capabilities, identity validation, and fraud detection.